Versus. The Commissioner of Income tax, Vidarbha & Marathwada, Nagpur.

Transcription

1 itr IN THE HIGH COURT OF JUDICATURE AT BOMBAY NAGPUR BENCH INCOME TAX REFERENCE NO. 437 OF 1975 R.B. Shreeram Durgaprasad (P) Limited, Tumsar. Versus The Commissioner of Income tax, Vidarbha & Marathwada, Nagpur. Shri A.K. De, Advocate for the applicant. Shri Anand Parchure, Advocate for the respondent APPLICANT... RESPONDENT CORAM : B.P. DHARMADHIKARI & S.B. SHUKRE, JJ. DATE OF RESERVING JUDGMENT : APRIL 29, DATE OF PRONOUNCING JUDGMENT : MAY 08, JUDGMENT : (PER B.P. DHARMADHIKARI, J.) This Court has vide its order dated in Income Tax Reference No. 437 of 1975 directed the Income Tax Appellate Tribunal (ITAT) to refer the following two questions of law : 1. Whether on the facts and circumstances of the case, the sum of Rs.1.71 crores (Rs. One crore Seventy one lacs only) was included in the income of M/s. R.B.S.D. (export firm) for assessment years to ; and

2 itr Whether on the facts and circumstances of the case, the Tribunal was justified in law in sustaining the addition of Rs.1.71 crores (Rs. One crore Seventy one lacs only) as the income of assessee from under invoicing in respect of export transactions? 2. Accordingly, we have heard Shri De, learned counsel for the applicant Official Liquidator as assessee company is under winding up orders and Shri Parchure, learned counsel for the respondent Income Tax department. 3. On , this Court has passed an order in the matter and after briefly referring to question arisen, this Court found it necessary to go through the order of Court dated in the matter. However, later on both learned counsel submitted that the matter needed to be adjudicated upon only on two questions mentioned supra. 4. Insofar as first question is concerned, the Official Liquidator has not disputed facts disclosed in para 3 to para 13 of the statement of the case dated forwarded by the I.T.A.T. In fact, Official Liquidator has filed written statement along with pursis

3 itr as Exh. A. The said written statement is prepared by Chartered Accountant assisting the Official Liquidator. The parties do not dispute that income of Rs.1.71 crore was included in the income of R.B.S.D. Export firm from the Assessment years to In this situation, submission is, assessee limited company i.e. R.B.S.D. (Private) Limited, Tumsar, could not have been taxed again for said sum of Rs.1.71 crore. The assessee company has submitted that it amounts to double taxation. It needs to be noted that other assessee viz. Export firm is not party to these proceedings. The facts are not in dispute. In fact, I.T.A.T. while forwarding statement of claim on has in para 4 stated that Question No. 1 as re framed by High Court does not arise out of order of Limited Company. Because question was so framed, I.T.A.T. took assistance of findings of fact reached in the matter of export firm. I.T.A.T., however, has pointed out that said Export Firm is not the applicant in Reference Application Nos. 250 to 252/Nag/ The assessee Private Limited Company and the other assessee (Export firm not party), appeared to be two units which belong to a group of companies commonly known as Durgaprasad and More group of companies. Both assessees deal in export of manganese

4 itr to various countries. During search and seizure proceedings conducted at residential premises of partners of Export firm and at the office of the Limited Company in 1963, the Enforcement Department of income tax seized various books of accounts and documents. According to Enforcement Authorities/ Income Tax Authorities, both the assessee indulged in under invoicing of Export commodity. Real profit derived was not entered in the books of accounts produced before them. The assessments of both assessee were reopened under Section 148 of the Income Tax Act. As niceties of under invoicing which have come on record are not in dispute, it is not necessary to go into those details. The Assessing Officer came to a conclusion that there was unaccounted business and there were also hundi loans from various parties at Rajasthan and transactions of ostensible loans from Bengal Investment Corporation, Calcutta, which were not genuine loans. He asked assessee to rebut the provisional conclusion but assessee did not co operate. The assessments were then completed under Section 144 of the Income Tax Act. Finding ultimately reached is, manganese ore was exported at a rate higher than rates accounted for in the books and unauthorized foreign exchange earned outside India was sold at unauthorized rates and more profits were made. This profit was brought back to India through illegal channels and part

5 itr of money was kept in the custody of export firm. Moneys were introduced in regular books of accounts disguised as Hundi loans or other kinds of loans. As these facts are not in dispute, we do not find it necessary to delve more into the matter. The Chartered Accountant who has prepared written submissions on behalf of the Official Liquidator has also reproduced relevant findings in his written notes. He has alleged that I.T.A.T. had confirmed additions of Rs.2,21,20, during the Assessment years to He has also remarked that additions as pressed into service before this Court of Rs.1,70,90,669/ as determined by I.T.A.T. is, therefore, not correct. 6. As we have already stated above, the other assessee is not party before us and addition of amount of Rs.1,70,90,669/ to the income of Export firm and its assessment accordingly is not in dispute. We accordingly answer Question No. 1 in the affirmative. 7. The second question to be looked into is the important question. Assessee private limited company has submitted that as income of Rs.1,70,90,669/ is already assessed to tax at the hands of Export firm, Private Limited company cannot be called upon to pay tax

6 itr upon that income again. 8. Shri De, learned counsel, has relied upon Circular No. 157 dated and judgment of the Hon'ble Apex Court in the case of Income Tax Officer vs. Bachu Lal Kapoor (1966) 60 ITR 0074, to urge that same income cannot be taxed twice. 9. Shri Parchure, learned counsel has invited attention to findings recorded by I.T.A.T. to contend that it is not same income and same assessee is not being subjected to tax in relation to that income. He contends that thus concept of double taxation is not attracted here. 10. The perusal of Circular No. 157 dated shows that it is on Assessment of discretionary Trust under Section 164/166 of the Income Tax Act. The circular mentions that in spite of clear instructions issued by Board on , neither Section 11 of the Income Tax Act, 1922, which gave option to the Department to tax either the representative assessee or the beneficial owner of the income nor the parallel provisions of Income Tax Act, 1961, contemplated assessment of the same income both in the hands of the trustees and the beneficiaries, instances reveal that such double

7 itr assessment was being carried out. This circular mentions that general principle is to charge income only once. Board has, therefore, clarified that in order to see that there is no loss of revenue, Income Tax Officer should keep this point in mind at the time of raising the initial assessment either of the trust or the beneficiaries and adopt a course beneficial to revenue. Having exercised this option once, it is not open to ITO to assess same income for the assessment year in the hands of the other person i.e. the beneficiary or the trustee. Thus, this circular speaks of assessee which is representative in nature and the real owner or beneficial owner. Thus, income as disclosed must be assessed either as income of representative assessee or then income of beneficial owner/ trustee. Very same income cannot be subjected to tax at the hands of representative assessee as also its beneficial owner/ trustee. 11. The judgment of the Hon'ble Apex Court in the case of ITO vs. Bachu Lal Kapoor (supra) speaks of assessment of a HUF. The Hon'ble Apex Court has held that a HUF as a separate unit of assessment, entitled to be assessed as distinct entity. Being person, it is liable to be taxed in respect of its income. Member of that HUF is not liable to pay any tax in respect of any sum which he receives as a

8 itr member of that family out of the income of that family. If the said HUF has escaped assessment for any year, the ITO, subject to the conditions laid down in Section 34(1) of 1922 Act, can issue a notice calling upon it to submit a return of its income for that year and proceed to assess HUF in terms thereof. It is further found that there is no question of any election between an HUF and a member thereof in respect of the income of the family. Thus, here the Hon'ble Apex Court has recognized HUF as a representative assessee. In this judgment in para 11, the Hon'ble Apex Court has considered arguments on double taxation. Contention before the Hon'ble Apex Court was, as the orders of assessment on the individual members of the family had become final, permitting ITO to assess the HUF for the same assessment year, would be imposing tax on same income twice. The Hon'ble Apex Court has noted that Section 14(1) of the Income Tax Act debars imposition of tax on any part of the income of HUF received by its members. It found that absence of a provision in the Act dealing with a converse position does not affect the question, as existence of such converse position was legally impossible under the Act. So long as the HUF exists, the Hon'ble Apex Court found that the individual thereof cannot be separately taxed in respect of income of HUF. It clarified that if under some mistake, such income was

9 itr assessed to tax in the hands of the individual members (which should not have been done), the revenue has to make appropriate adjustments as otherwise assessment made in respect of that income on the HUF would be contrary to the provisions of the Act. The Hon'ble Apex Court has also observed that appropriate adjustments by revenue in such matter is not reopening of final orders of assessment but in reality, to arrive at the correct figure of tax payable by the HUF. 12. In the case of Jamnaprasad Kanhaiyalal vs. Commissioner of Income Tax, M.P., Bhopal, reported at (1981) 3 SCC 441, the Hon'ble Apex Court has held that voluntary declaration under Section 24 of the Finance Act, 1965, relates to income earned by the declarant only. It is held that when such declaration is made by partners individually, immunity conferred by Section 24 is available to the declarant partners and not to crediting firm or any other person. In this judgment, in para 21, the Hon'ble Apex Court has considered the question whether the same income cannot be taxed twice, once in the hands of the creditors and again in the hands of the assessee. The Hon'ble Apex Court observes that in a case of the description as before it, there was no question of double taxation. The Hon'ble Apex Court observes the situation is of the assessee's own making in getting false

10 itr declarations filed in the names of the creditors with a view to avoid higher slab of taxation. Once it was found that the income declared by the creditors did not belong to them, there was nothing to prevent the same being taxed in the hands of the assessee to which it actually belonged. 13. Traditional concept of double taxation is explained by the Hon'ble Apex court in the case of Commissioner of Income Tax vs. P.V.A.L. Kulandagan Chettiar, reported at (2004) 6 SCC 235. The Hon'ble Apex Court explains that to constitute double taxation, objectionable or prohibited, the two or more taxes must be (1) imposed on the same property, (2) by same State or Government; (3) during the same taxing period; and (4) for the same purpose. There is no double taxation where (a) the taxes are imposed by different States, (b) one of the impositions is not a tax, (c) one tax is against property and the other is not a property tax, or (d) the double taxation is indirect rather than direct. Thus, in this background, when present facts are examined, it is apparent that the assessee Private Limited company is not disputing the act of I.T.A.T. in treating amount of Rs.1.71 Crore as its income. There is no challenge to this addition. The only contention is, as said amount is already taxed and Export

11 itr firm is made answerable for that tax or sum, taxing Private Limited company is double taxation. The amount has actually gone into the coffers of Export firm which has appropriated it as its income and used it. The payment of tax by it, therefore, is natural and is not being objected to. The Private Limited company has not pointed out any grievance made by the Export firm in this respect. 14. The amount which has gone to Export firm actually belonged to assessee i.e. Private Limited company. It has concealed that income and clandestinely made it over to export firm. Thus, its ownership over said amount of Rs.1.71 Crore is not in dispute. The amount really belonged to it and, therefore, it was and is answerable and has to pay tax on it. It cannot be permitted to urge that as Export firm has paid tax on that amount, the same cannot be demanded from it. The mischief of assessee Private Limited company has been detected and it cannot be permitted to take any advantage of it. If this argument of assessee Private Limited company is accepted, it is nothing but allowing it to reap benefit of mischief played by it. If on account of its own mischief, it has sustained any loss, it cannot make a grievance for the same. However, it is settled that it cannot be permitted to take advantage of its own wrong. The revenue has

12 itr corrected the wrong and has also demanded tax from the assessee Private Limited company to whom that income really belonged. Thus, the Export firm has to pay tax as it has actually utilized that amount as its income while the Private Limited Company (assessee) has to pay tax as it attempted to conceal that income. The income really belongs to it and it was and is answerable to pay tax upon it. In this situation, we find that the concept of double taxation is not attracted in the present matter. 15. We, therefore, find that the Tribunal was justified in sustaining addition of Rs.1.71 Crore as income of the assessee. Question No. 2 is answered accordingly in favour of the revenue and against the assessee Private Limited Company. 16. Reference proceedings are accordingly disposed of. No order as to costs. JUDGE JUDGE ******* *GS.